An investigation in the wake of a major fraud case involving the Department of Veterans Affairs regional office in Louisville has found that other VA offices around the country suffer security shortfalls that leave them vulnerable to the same type of alleged fraud.

The review by the Department of Veterans Affairs Office of Inspector General found no similar allegations of fraud, but its report warns that gaps in VA's internal controls mean that "opportunities exist . . . to generate fraudulent large benefits payments."

A VA spokeswoman said yesterday that the department has taken actions to correct the problems. "VA has implemented safeguards to protect the integrity of benefit payments and actively monitors our payment processes for compliance," said Katie Roberts, press secretary for VA. "We remain committed to taking all actions necessary to eliminate the potential for fraud and ensure our veterans receive every benefit to which they are entitled."

In November, acting after an investigation based on a tip from a confidential source, the U.S. Attorney's Office for the Western District of Kentucky indicted 14 people in connection with a scheme to defraud VA by submitting altered or counterfeit medical records.

The government accused Jeffrey Allan McGill, a former veteran service representative at the Louisville VA office, of working with co-conspirators, including 11 veterans, to submit fraudulent claims for military-related disabilities. McGill and co-defendant Daniel Ryan Parker, a former officer with the Disabled American Veterans service organization, are accused of falsifying documents to ensure that those claims were approved.

Five of the defendants have pleaded guilty to charges in connection with the case. The remaining defendants, including McGill and Parker, have pleaded not guilty and are set to go to trial in September, according to the U.S. Attorney's Office in Louisville.

Alarmed by the allegations, VA's inspector general office began an investigation in May 2008, six months before the indictments. Investigators visited three VA regional offices (VAROs) that had issued an abnormally high number of large retroactive payments to veterans, which adjust amounts paid earlier and are considered particularly susceptible to fraud.

Investigators reviewed the files for 690 large retroactive payments made by the offices in Huntington, W.Va.; San Juan, Puerto Rico; and Los Angeles between 2005 and 2008 but found no fraud.

"These results mean we can say with 90 percent confidence that this particular type of fraud is unlikely to be occurring at the VAROs selected for review during the sampled period," said the IG report, which was released June 30.

But the investigation found that the Veterans Benefits Administration, which oversees benefits and services for VA, failed to provide enough guidance to regional offices on how to maintain accountability over its official date stamps, which could be used to falsify documents.

"The VAROs we visited, consequently, did not maintain adequate control over their date stamps, making them vulnerable to fraudulent schemes," the report says.

In Los Angeles, the review team found multiple date stamps left unsecured in the mailroom and the door taped to prevent it from locking. Supervisors in Huntington and San Juan were unaware of how many stamps had been issued or where they were located.

In its response to the IG report, VA said it has already issued instructions to regional offices on how to keep track of the date stamps.

VA adopted previous reforms after a scandal in 2001 in which employees at the Atlanta regional office generated about $11 million in fraudulent compensation claims.

In response, VA began reviewing all retroactive payments of $25,000 or more. But that review was not designed to detect fraud based on altered documents, according to the IG report.

The report recommends that VA examine medical records before making large retroactive payments. "We believe that VBA will continue to be vulnerable to fraud-related activities concerning large retroactive payments if controls over the retroactive payment and review process are not improved," the report says.

Roberts said the department has adopted new procedures that will ensure that medical records are validated for authenticity.